EM debt funds on a winning streak for inflows

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According to Morgan Stanley analysis, emerging market (EM) debt funds have seen eight weeks of inflows over the summer period, representing the longest streak since June 2019, at US$2.4 billion, or 0.44% of assets under management (AUM) for EM debt.

Within this period inflows across the asset classes were ‘considerable’ between 20 August and 26 August. Breaking down the EM investment, hard currency funds saw US$1.2 billion of inflows and local currency funds saw US$691 million.

Morgan Stanley’s team observed that blended inflows were notable with US$452 million making up the largest weekly inflow since mid-February. Active management was a winner this week with 74% of those net inflows going to non-exchange-traded funds (ETFs), although 80% of local inflows being focused on ETFs.

Meanwhile Bank of America Global Research reported that this week’s US$16.7 billion inflows into bonds included the biggest EM inflows since January, while also reporting flows of US$1.2 billion into gold, US$0.1 billion into equities, and US$8.6 billion out of money market funds.

The analysts at Morgan Stanley found that global fund inflows accounted for 65% of the inflows while regional/country-mandated fund inflows were driven entirely by inflows to Asia ex-Japan (AXJ). This is the 7th consecutive week that AXJ has received more than 50% of the regional net inflows, they reported, noting that the inflows occurred this week “despite a slightly stronger dollar and negative hard currency and local currency performance (-0.16% and -0.81%). Year-to-date returns in local and hard currency now stand at -5.16% and +1.30%, respectively.”

The flow of new EM bonds increased with overall credit supply standing at US$11.6 billion this week, according to Morgan Stanley analysis, versus US$7.7 billion the week before, including sovereign issues by Abu Dhabi and Ukraine; analysts expect sovereign supply to speed up over the next two months.

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